Retirement may seem a long way off at the start of your career but it’s never too early to start saving for a pension.
Retirement may sound a long way off for someone at the beginning of their working life but time can pass surprisingly quickly.
A person retiring in the UK today would receive £203.85 a week from the State pension, providing they have 35 years of National Insurance contributions. Currently, the State pension begins at 66 but is set to rise to 67.
According to the Department for Work and Pensions, the average weekly income for a pensioner in 2022 was £349. If you are looking for a reasonably comfortable retirement, you are likely to need considerably more than that.
When planning a pension, the sooner you start putting money aside, the better, to allow more time for your investments to grow.
How much of your income should you put aside?
Some experts suggest setting aside around 15% of your annual pre-tax income if you are to begin saving while still in your 20s, while others say take your age and halve it. You need to be realistic about the amount you can reasonably save because this should be a long-term commitment if you are to see a good return.
Before deciding on the investment figure, take into account everyday living expenses such as mortgages, rent, utility and food bills, as well as allowing for savings for one-off higher-end purchases such as holidays, home improvements and the occasional treat that makes life fun.
If you are a full-time member of staff, check out what your company has to offer in the way of pensions. It is likely it will have its own pension scheme and most companies match your contribution with at least the same amount again.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown told Euronews: “If you work for a company and are aged over 22 then you will be auto-enrolled into a workplace pension scheme. As well as your own contributions you will also get a top up from the government in the form of pension tax relief and your employer will also contribute. With pension tax relief and the employer contribution added to your own this can mean a significant amount is going into your pension every month.”
This form of saving is probably the UK’s most popular because you do not need expert knowledge as your company will be working with a pension provider to choose your investments for you. Once invested, however, you will not have access to your pension before the age of 55.
What about the self-employed?
If you are self-employed, consider a self-invested person pension (SIPP). Although you will not gain the extra funds from an employer, your contribution is still tax deductible. Also, if you make your own choices, you’ll save on the costs of a professional advisor would charge. Look at an online comparison site to find the right financially strong provider for you.
Another option if you are under the age of 40 is to look at a lifetime ISA for your retirement savings. You can put in up to £4,000 a year and the government will add a 25% bonus to your savings. A word of caution: you can take money out of this saving scheme but you will have to pay a 25% exit penalty.
Helen Morrissey reminds that the key points are: “The important thing is to save what you can. Use online calculators to help you model what you are on track for and you can make decisions on whether you need to contribute more.
“The Pensions and Lifetime Savings Association released their retirement income standards which gives a rough guide for what you need to live a moderate, basic and comfortable retirement and these can be a useful rule of thumb.”
This info does not constitute financial advice, always do your own research on top to ensure it’s right for your specific circumstances. Also remember, we are a journalistic website and aim to provide the best guides, tips and advice from experts. If you rely on the information on this page then you do so entirely at your own risk.